Starting January 1, 2025, significant changes to Australia's Foreign Resident Capital Gains Withholding (FRCGW) rules will affect all property sellers.
Here's what you need to know:
Key Changes Effective January 1, 2025:
Increased Withholding Rate: the withholding tax rate has risen from 12.5% to 15% of the property's sale price.
Removal of Value Threshold: previously, properties sold for less than $750,000 were exempt from withholding. This threshold has been eliminated, meaning the FRCGW rules now apply to all property sales, regardless of value.
What This Means for Australian Resident Sellers:
If you're an Australian resident selling property, you must obtain a clearance certificate from the Australian Taxation Office (ATO) and provide it to the buyer before settlement. This certificate confirms your residency status for tax purposes and ensures that the buyer does not need to withhold 15% of the sale price. Steps to Obtain a Clearance Certificate:
Apply Early: It's advisable to apply for the clearance certificate as soon as you decide to sell, even before listing your property. The application process is free.
Processing Time: While many certificates are issued within a few days, some may take up to 28 days. Applying early helps prevent settlement delays.
Validity: Once issued, the clearance certificate is valid for 12 months, allowing flexibility in your selling timeline. Consequences of Not Providing a Clearance Certificate:
If you fail to provide the clearance certificate to the buyer before settlement:
Withholding by Buyer: The buyer is legally required to withhold 15% of the purchase price and remit it to the ATO.
Delayed Funds: You will receive only 85% of the sale proceeds at settlement.
Refund Process: To recover the withheld amount, you'll need to lodge a tax return, which could delay access to your funds. For Foreign Resident Sellers:
Foreign residents selling Australian property cannot obtain a clearance certificate. However, they may apply for a variation to reduce the withholding rate if they believe the standard 15% is too high for their situation. This application should be submitted to the ATO well before settlement.
Further Information:
For detailed guidance and to apply for a clearance certificate or variation, visit the ATO's official page on Foreign Resident Capital Gains Withholding: https://www.ato.gov.au/forms-and-instructions/capital-gains-withholding-clearance-certificate-for-australian-residents-online-application
Staying informed about these changes ensures a smoother property transaction process and helps you avoid unexpected financial implications.
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